Crypto Assets To Come Under Income Tax Ambit From April 1. This Is How They Will Be Taxed

Gains from virtual digital assets like cryptocurrencies and non-fungible tokens (NFTs) will come under income tax ambit from April 1 as the new financial year kicks in. Crypto assets and NFTs will be taxed at a flat 30 per cent when any such transaction takes place, Union Finance Minister Nirmala Sitharaman said while announcing Budget for upcoming financial year which begins tomorrow.

Last week, government proposed to tighten the norms for taxation of cryptocurrencies by disallowing set off of any losses with gains from other virtual digital assets.

As per the amendments to the Finance Bill, 2022, circulated among the Lok Sabha members, the ministry proposed to remove the word 'other' from section relating to set off of losses from gains in virtual digital assets.

This would mean that loss from the transfer of virtual digital assets (VDA) will not be allowed to be set off against the income arising from the transfer of another VDA.

According to the Finance Bill, 2022, a VDA could be a code or number or token which can be transferred, stored or traded electronically.

The VDAs will include prevailing cryptocurrencies and non-fungible tokens (NFTs) which has gained fad over the past couple of years.

The 2022-23 Budget has brought in clarity concerning the levy of income tax on crypto assets. From April 1, a 30 per cent I-T plus cess and surcharges, will be levied on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.

Here is how cryptocurrency assets will be taxed from April 1

"The government has provided the clarification on the taxation policy for the individuals. Indian investors can not offset the losses arising from one crypto exchange against the profits from others. This means, even if you make a loss in one asset, you have to pay taxes on the gains on others," said Kunal Jagdale, founder of BitsAir Exchange.

"The new regime of flat 30 per cent taxation on income from crypto assets from April 1, 2022 will ebb the sentiments for the new age asset class. Though, we hope that the crypto investors will back their investment thesis and stay in with the investment for longer periods. On the other hand, Indian exchanges are still awaiting more clarity around GST structure for the crypto assets and we are hopeful that the regulators will soon come up with an investor friendly GST mechanism," Jagdale added.

"The loss in one VDA will not be set off from profit in another VDA. Hence all loss transaction will be ignored for tax calculation and only profit will be calculated. All trading pairs be it fiat to crypto OR crypto to crypto will be a taxable event. Apart from holding and trading even gifting of VDA be will taxable in the hands of the recipients. This tax bill even covers miners as no expenses of setting up mining are allowed as deduction. Therefore mining transaction cost of purchase will be Zero. What can be set off is only the cost of acquisition/purchase on VDA," Manoj Dalmia, founder, Proaasetz Exchange.